We’ve seen that just 35% of the Towers are 3G Lighted implying slow deployment of 3G data Services even 3 years after the auction. From a demand perspective, we believe that the challenge from a 12-15 month perspective is increasing 3G penetration. Even though it is a daunting task, the current c150m subscriber pool of 2G data users is clearly a segment, which can be upgraded to 3G services (and it is the handset vendors that will drive this with handset affordability being in the sub USD 100 category)
Pre-Paid and the Low Account Balance of Consumer a Concern for CAPEX
India is among the few markets globally that is pre-paid centric and without any handset subsidies). The second aspect is driving average usage per subscriber. We don’t think that it is the focus at present and usage issue will come up over the next 18-24 months. Another challenge as far as driving usage is concerned is driven by the fact that more than 25-30% of users have a balance averaging Rs 30. This low balance characteristic could be a significant deterrent to data growth as operators need to invest heavily in CAPEX.
Spectrum Challenge Continues
The high Level of Corruption in India at the DoT and Various Ministries involved in decision making is a severe deterrent. The Government must focus to ensure pan-India 3G footprints (atleast 2 competitors with enough spectrum) and the second task is to get another 5 MHZ block in existing 3G markets. If spectrum issues remain unresolved, then Indian operators will likely fail in monetising the data growth opportunity. The ability to manage data traffic growth will be a function of investment in network backhaul as well. Indian operators score low from a regional / global perspective when it comes to “fiberisation” of towers and the ability to accommodate / drive data growth.
Data Coming in Both 900Mhz and 1800MHz
With the rapid rise of Data usage in the West, R&D Engineers have fine tuned networks to use existing Spectrum Bands to transmit large chunks of Data. In this backdrop, GSM telcos may very much consider deploying data in 900 MHz markets and such an approach will likely allow them to address investor concerns around availability of data spectrum. As CDMA business weakens further, BSNL, MTNL and Tata DoCoMo may surrender their CDMA spectrum entailing to carve out the E-GSM Band for Data services. Indian telcos could benefit from lower capex if the regulator released spectrum in the E-band, which could allow telcos to do away with last-mile fibre from a medium term perspective.